The Future of Disruption

Strategy

The issue of Uber in Perth has now reached the flashpoint of other cities around the world. The disruption to the incumbent taxi industry is well known and it would be heartless not to feel for those who have invested significant sums to purchase licence plates.

Many peoples’ livelihoods depend upon their ability to provide a mobility service that has met consumer demand for many generations.

Or has it?

When cabs first appeared on the streets of London in 1897 they then and subsequently provided a needed service. Flexible mobility is still required today and just as the electric battery­ powered taxis of the late 19th century replaced the earlier horse-drawn hansom cab, so the cab service of today is being supplanted by a radical offering that exploits technology to better meet consumer demand.

It is instructive to note that the technology fundamental to Uber, car-based GPS technology, has now been available for more than 20 years (Google maps, GPS). The change that technology catalyses is often insidious and unnoticed at first, but then reaches an inflection point at which sudden and disruptive change is unstoppable .

We reached that point in Perth last year.

The taxi industry has considered the prospect of change. Four comprehensive reviews have been conducted in the past 15 years. But it would seem they were more about continuing the protection of an early 20th century industry than truly considering, and addressing, changing consumer demand.

Rather than anticipating changing market expectations and identifying the ever-present opportunity to exploit technology, the reviews focused on preserving the past. They were more of a rear-view mirror perspective than looking through the windscreen to the road ahead.

The first, in 1999, by BSD Consultants, proposed that regulation on licences be phased out over several years, although it was noted that some barrier into the industry was beneficial. At the time, the Federal Government was keen to deregulate taxis because of what was “a lack of competitive spirit within the industry”.

In 2003, the Hon. Graham Gifford, MLC, recommended that licences remain capped. However, in 2005, the Hon. Alannah MacTiernan, MLA, then Minister of Planning and Infrastructure, publicly stated: “The idea that the Government would create a restriction and that restriction would lead people to have an asset that accumulates in value, driving up the price of providing a service, which has been the basis of the regulation, is just a complete nonsense.”

But her Government and subsequent Governments did nothing about it. Nor was the Federal Government sentiment of six years earlier ever acted upon.

It was not until mid-and-late 2014 that attention was turned back to the taxi industry, four years after Uber launched in San Francisco in 2010 and two years after it started operating in Australia.

The Economic Regulating Authority of WA recommended in June 2014 to remove quantity restrictions on the taxi industry in WA in a single stage and mentioned Uber. The ERA suggested regulations needed to be adjusted in response to this new technology and that consumers would derive significant benefit if the Government did so.

Note the use of the word “new” in relation to technology. Certainly Uber was only four years old, but the GPS and mobile phone app technology had by then been available for 20 and six years respectively .

Who is being disrupted?

But while we know the taxi industry is under threat, who are Uber and the other disruptors really disrupting?

Ultimately, it is the legislators and the regulators.

Wherever these governors and overseers seek to control an industry they will be at greater risk than ever before. From an economics perspective, we have known this for a long time. One of the earliest examples I recall from my youth was President Richard Nixon’s price control policy of 1971.

Alan Greenspan summarises the issue well in his book, The Age of Turbulence, stating that Nixon and his men were “running into the problem of central planning in a market economy – the market will always undermine any attempt at control”.

Within a couple of years, the whole system failed and Nixon admitted it was his worst policy.

The difference today is that technology has attributes that regulators have never had to confront before: it is fast moving and it mobilises global commodities on a scale never seen before.

However, while technology today is progressing at a greater rate than ever before, the early signs of disruption, or from a start-up's perspective advantage, are available for all to see, and use.

It was 20 years ago next month that the head of the MIT Media Laboratory, Nicholas Negroponte, visited Perth and spoke about the implications of “being digital”. In his book of that name, published that year, he wrote about the already then available mapping and tracking technology in cars, launched in the US by Oldsmobile in 1999 but available from Toyota and Honda in the early 1990s. More importantly, he spoke and wrote about the impact that being digital would have on Governments.

To paraphrase Negroponte, regulators such as those in the taxi industry, out of habit, will continue to want to control the industry itself, which really makes no sense at all. However, “In an open system we compete with our imagination, not with lock and key.”

Rather, the mandate should be for regulators to oversee advanced technology deployment into industries in ways that minimise disruption at any given point in time, while providing continually increasing levels of customer service, productivity and societal development.

About broadcasting policy, Negroponte said of the US Federal Communications Commission that “there is simply no way to limit the freedom of bit radiation any more than the Romans could stop Christianity, even though a few brave and early data broadcasters may be eaten by the Washington lions in the process."

“The combined forces of technology and human nature will ultimately take a stronger hand in plurality than any laws Congress can invent.”

Laws are made for a reason and we entrust our legislators with the task of setting a safe, reliable and understandable framework for living, working and being that allows everyone to prosper. But those laws and those structures cannot be set in stone for eternity.

Rather than dealing with the present by looking to the past, our elected Governments, employed bureaucrats and appointed directors on Government boards will have to be closely attuned to the radical change that is now enabled by technology and fuelled by human behaviour.

The then President of the Business Council of Australia, Catherine Livingstone, put this well when she said in April 2015, at a speech to the National Press Club: “Given the disruption of a hyper-connected world, many of our policy settings are simply not fit for purpose. They have exceeded their design tolerance limits.”

Tellingly, Livingstone added: “If we embark on a 10-year transition now, we might just have policy frameworks fit for purpose by 2025. If we do not, we face certain loss of standard of living and social cohesion.”

A two-edged sword

Legislators and regulators of the future should get out of the way of innovation and market demand, and create a positive environment in which both can flourish. The role of the future is not just to enact but to enable, not disenable. Nor to disenfranchise.

This will require a steady windscreen view of the road ahead with an eye to what has gone before, such that we may be informed and manage the fallout of the future.

Policymakers and regulators of the future will be required to consider both the positive and negative outcomes arising from their rulemaking. These will be both direct and indirect.

The direct policy settings are clear. But consider for a moment what a different landscape the taxi industry might have been in if the State legislation mandated the deployment of new technologies on a rolling basis, say over five to 10 years, so as not to be too onerous.

Free-marketers might argue that levels of investment in research and development is a matter for market participants to decide. That may be so, but remember we are talking about a heavily regulated industry. The Government is already telling the private operators what they can and cannot do, what they can and cannot charge, who can and who cannot participate. Or they are trying to.

A positive indirect policy setting might have prescribed an environment in which mobility technology development was stimulated in ways that benefited the operators, the industry at large and the community.

The indirect negative impact of failing to create such an environment of innovation is the disruption now being experienced.

Contemplating direct and indirect impacts arising from legislation is a challenge in itself . But the real challenge of the future is to actively develop positive indirect impact settings that will enable industries, and society, to flourish in ways that let Joseph Schumpeter’s winds of creative distraction blow through not as a gale, but more of the welcome relief of WA’s famed Fremantle Doctor.

As a consultant, I have learned that it is easy to be wise for others. Less so for oneself. Taking a dose of our own medicine is challenging, but must be done. Management consultants, too, are at risk of disruption via offerings such as Google (Consultant). We must think of ways to differentiate ourselves from that powerful information engine and do so in ways that, of course, benefit our clients.

If regulators really thought about who they are elected, appointed or employed to serve, they would realise it is the community at large, not a select and small group of people who hold self-interest above the greater good.

John Barrington is founder of Barrington Consulting Group, a leading Perth-based strategy consultancy, and Chairman of the Perth International Arts Festival.